Deals gone wrong. The Horror files.

By now almost everyone has heard about a business that ran a deal and was ruined as a result. Each time it’s likely that one of three thing happened. It’s the three things that if you even have one of you probably should not run a deal.

1.) You did not cap the deal

This is just handing your business over to someone else who’s motivation aren’t the same as yours, and are totally revenue driven. Daily deal companies do not care about your limits. They care about how many dollars they can extract from their email list that day. Here’s a good example. Early on, say mid to late 2009, a small cupcake shop in San Francisco was called up by a rep. These guys had themselves and maybe 4 employees. Like many business’ they assumed that hey it’s worth while to not make any money on a few customers for a bit of press. What the heck, how many would get sold? They didn’t even ask questions. Ran a deal for 1/2 off a dozen cupcakes, and sold almost 4500 offers in 24 hours. They suddenly added a 50,000 cupcake liability to their books. So many people were redeeming that none of their paying customers could even get in the doors. So now they’re working strictly at cost until they can make 50k cupcakes. They tried to get bank loans just to buy the flour they needed. Bank told them to get real. Their staff was working so many hours they started to quit. Now, if memory serves this place might have just squeeked though and kept alive. But I’m not sure of that.

2.) You’re already financially shaky, and use the check to keep afloat.

If your business is out of cash, and you need the check from your deal to pay the bills, then you’re just putting off the inevitable. So a local house cleaning company runs a deal. In this case the rep set up the deal correctly. Was limited in capacity, and properly reflected the business’ normal pricing. Problem was that this business wasn’t attracting any business otherwise. They starting calling the company as the check couldn’t get there fast enough. They go out of business. The deal really didn’t hurt or help, as they couldn’t even stay afloat long enough to convert any fraction of customers into repeat business.

3.) You change your business model to allow daily deals to become your sales channel

This is what happens to people who are the most afraid of selling themselves. Suddenly there’s someone who can get people to show up at your door, so why do that icky selling. So they start reducing their fixed costs, start cutting corners, and remove value so that the money they get from daily deals is enough. But now these business’ have to start running lots of deals. They’re on Groupon, then LivingSocial, then Amazon, then HomeRun, and then Tippr. Well people notice, and each time an offer runs fewer and fewer are sold. People catch on, and this business goes under.

Any of these are terrible, and sometimes people have all three. I’ve never seen a daily deal be the root cause of someone going out of business, but there have been lots of owners who’ve let these tools get misused. If your worried about this happening to you here’s my advice on what to do:

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